Reddit is getting added to the S&P 500. The announcement came Thursday evening after the market closed, and the stock jumped about 11% on the news. It officially enters the index before the open on Tuesday, August 18.
If you have money in an S&P 500 index fund, and most people with a 401(k) do, you're about to own a small piece of Reddit. The company that hosts r/wallstreetbets will sit in the same index as Coca-Cola and Johnson & Johnson, which is a little funny given the site's history with meme stocks.
The announcement
This wasn't part of the normal quarterly rebalance. AvalonBay Communities, a big apartment REIT, is being acquired by Equity Residential, so a spot opened up. The index committee picked Reddit to fill it. These off-cycle swaps happen whenever a company in the index gets bought or delisted, and there's usually a short list of candidates that analysts have been arguing about for months. Reddit had been on that list for a while. People have been predicting this move since last year, which makes the 11% jump a little surprising on its own. Predicted and confirmed are apparently two different things.
How companies actually get picked
A lot of people assume the S&P 500 is just the 500 biggest US companies. It's not, quite. There's a committee at S&P Dow Jones Indices that makes the calls, and it works within some rules. A company has to be profitable over its last four quarters combined, including the most recent quarter. It has to be big enough, US based, and liquid enough to trade in size. Beyond that, the committee has discretion, which is why a small industry of analysts exists to guess its next move. The Russell indexes, for comparison, run almost entirely on formulas.
The other thing worth knowing is that Reddit is going in directly. A lot of companies reach the S&P 500 by spending time in the S&P MidCap 400 first and getting promoted later. Reddit skipped that. It went public in March 2024 at $34 a share and made the big index in about two and a half years without stopping anywhere in between. That detail matters more than it sounds like it should, and I'll get to why.
What the research shows
Finance researchers have been writing about index additions since the 1980s. Two papers from 1986, one by Andrei Shleifer and one by Harris and Gurel, found that stocks rose around 3% just from being added to the S&P 500. Nothing about the business changed. The company got put on a list and the price went up. That result bothered a lot of academics, because in a truly efficient market it shouldn't happen.
The effect got bigger through the 1990s, when new additions gained around 7.4% on average. Traders noticed and built a whole strategy out of it. Two researchers, Beneish and Whaley, went as far as titling their 1996 paper "An Anatomy of the S&P Game." The peak of all this was probably Tesla in late 2020. Between the announcement that it was joining and the day it actually joined, about five weeks, the stock climbed roughly 70%.
Then the effect mostly died. Robin Greenwood and Marco Sammon at Harvard published a paper in the Journal of Finance last year called "The Disappearing Index Effect." They found the average gain fell to under 1% during the 2010s. They give a few reasons. More of the additions were companies moving up from the MidCap 400, so midcap index funds were selling at the same time S&P 500 funds were buying, and the two roughly canceled out. Wall Street desks also got much better at providing liquidity around these events. And the changes became easier to predict, so prices adjusted before the news instead of after.
Here's where the direct addition part comes back. Even in the late 2010s, when the overall effect was fading, Greenwood and Sammon found direct additions still gained about 2.2% while the MidCap promotions actually went down on average. And over the past year or so the effect has picked up again across the board, partly because retail traders now jump on these announcements. Reddit rising 11% fits that pattern. Some of the people buying it are probably posting about it on Reddit right now.
Who's buying
Index funds, and they don't get a choice. Vanguard, BlackRock and State Street run the big S&P 500 funds, and they have to own Reddit at its index weight the moment it enters. By some estimates, more than a tenth of the entire US stock market just mechanically tracks this one index. That is trillions of dollars that has to follow whatever the committee decides.
Most of that buying happens at the close on Monday, right before the change takes effect, because the funds want to match the index's official price. JPMorgan estimates index funds will need to buy around 16.7 million shares. Reddit normally trades about 6 million shares a day. So roughly three days of normal volume gets bought in one closing auction, by buyers who aren't price sensitive at all.
Active fund managers who get measured against the S&P 500 are in an awkward spot too. They don't have to buy it, but if they skip it and the stock does well, they fall behind their benchmark and have to explain that to clients. A lot of them will just buy it. And between now and Monday, plenty of short term traders will be buying for a different reason entirely, which brings us to the sellers.
Who's selling
A big chunk of the selling will come from traders who bought Thursday night planning to sell a few days later. It's an old trade. Buy on the announcement, hold until the effective date, then sell to the index funds, because you know a massive buyer has to show up at a specific time. Hedge funds and bank trading desks have run that play for decades. It's the same S&P game from the 1996 paper, still going.
Existing holders with big positions get a convenient exit too. If you're an early investor or an insider sitting on a lot of stock, it's much easier to unload shares into that kind of guaranteed demand than on a normal quiet day.
History says the sellers usually come out fine. Melissa Roberts, an analyst at Stephens, has noted that new additions tend to beat the index between the announcement and the inclusion date, with the biggest gain coming the day after the announcement, then lag the index by about 2% over the next three months. The recent track record backs that up. Of twelve recent competitive additions, seven are below where they were when they joined. AppLovin dropped more than 50% after its initial pop. Marvell is down almost 30%.
Where Reddit stands going in
The strange part is Reddit got picked during a rough stretch for the stock. Before Thursday it was down about 31% for the year and more than 40% below its September 2025 high, even though the underlying business has been running hot. The most recent quarter had revenue up 61% to $805 million and $253 million in profit. The ad business keeps growing, and the company has been getting paid for its data too, including licensing deals that let Google and OpenAI train their models on Reddit posts. Management is calling the inclusion a validation of all that, which seems fair.
Whether the pop holds is a different question, and the research says probably not. The pattern for years now has been a jump at the announcement, a decent run into the effective date, then a slow fade once the forced buying is done. Maybe Reddit breaks the pattern. Companies growing revenue 61% a year sometimes do.
Either way, Reddit is in as of Tuesday. The website where people argue about stocks is now a stock in almost everyone's retirement account.